Broker vs Pension: Which One Should YOU Invest In?

When weighing broker versus pension for ETF investments, consider your timeline; pensions excel for long-term strategies while brokers for mid-term strategies.

Key Takeaways

  • Navigating between a broker and a pension for ETF investments hinges on your financial goals and investment timeline.
  • Brokers offer ease, flexibility, and accessibility, making ETF investing straightforward and adaptable to individual preferences.
  • Pensions provide security, tax efficiency, and long-term stability, particularly advantageous for extended investment horizons.
  • Comparing scenarios reveals the potential tax advantages of pensions for long-term ETF investing strategies.
  • Choosing between a broker and a pension depends on your investment duration between short-term, mid-term, and long-term.


Seeking investment advice on the internet often leads to the recommendation of purchasing a single ETF. But does this generic advice truly maximize your investment potential? Furthermore, should you allocate your ETFs to a broker or one of Germany’s pension schemes?

In this PerFinEx article, we embark on an exploration of these questions. Understanding that there’s no definitive answer, we’ll dissect the merits and drawbacks of each option. From flexibility and tax benefits to achieving the highest returns, we aim to provide clarity on which avenue aligns best with your financial objectives. Join us as we delve into the nuances of investing in ETFs through brokers versus pension schemes.

Benefits of a broker

  • Easy & Flexible: One of the primary advantages of using a broker for ETF investments is the ease and flexibility it offers. ETFs have gained popularity due to the simplicity they bring to investing. Comparing German brokers like Scalable Capital with Trade Republic reveals minimal differences between them. This uniformity means there’s little room for error. Utilizing these platforms involves downloading an app, transferring funds, and purchasing desired ETFs. However, it’s essential to note that certain ETFs, such as SPY or VTI regulated only in the US, are not permissible for EU investors. Attempting to circumvent these regulations can lead to complex tax implications. While the options for ETF investments through a pension scheme vary depending on the specific plan, it’s crucial to explore the available choices before making a decision.
  • Passive Income Possible: Another significant benefit driving the popularity of ETF investing is the potential to generate passive income. Investing in Distributing ETFs that pay dividends enables individuals to create streams of passive income effortlessly. This aligns with the desire for passive income prevalent among internet users. While receiving dividends from a portfolio is appealing, it’s important to consider the tax efficiency of such income streams.
  • Lower Costs: When deliberating the broker versus pension debate, the cost factor comes into play. The suitability of each option depends on the investment duration. Over a short period, the impact of taxes on capital gains may not be substantial. However, over the long term, taxes can significantly affect returns. Therefore, carefully weighing the costs associated with both brokers and pension schemes is essential to make an informed decision.

Benefits of a Pension

  • Life-long Monthly Pension: One of the key advantages of opting for a pension scheme over a broker for ETF investments is the assurance of a lifelong monthly pension. Unlike the flexibility offered by brokers, pensions provide a structured approach to retirement planning. Consider a scenario where you invest €250 monthly over 37 years, accumulating a substantial nest egg by retirement. Without considering taxes or costs, you may envision various monthly pension amounts based on life expectancy (10 years? 20 years? 30 years?). Choosing a monthly payout with a pension ensures financial security, even if you outlive your projected lifespan. While flexibility may be reduced, the safety net provided by a pension offers peace of mind, safeguarding against financial uncertainties in retirement.
  • Tax-Free Inside the Pension: A significant advantage of pensions is their tax efficiency, often serving as a shield against taxation. Unlike brokers, where dividends, sales profits, and rebalancing incur capital gains tax, pensions offer a tax-free environment. Accumulating ETFs within a pension shields investors from the complexities of capital gains taxation. European governments’ implementation of the Vorabpauschale tax underscores the tax advantages offered by pensions. By placing ETFs inside a pension, investors enjoy tax-free dividends, profits, and withdrawals, enhancing long-term growth potential and mitigating tax liabilities.
  • Tax Benefits During Pay-in or Pay-out: Pensions offer additional tax benefits during both contribution and withdrawal phases, further solidifying their appeal. Level one pensions enable investors to deduct contributions from taxable income, yielding immediate tax benefits. For instance, investing €10,000 in a level one pension with a 42% tax rate reduces taxable income by €4,200, resulting in tax deductions and increased savings rates. Level three pensions, while devoid of tax benefits during investment, offer advantages during withdrawal. Lump-sum payouts benefit from a 50% tax reduction, reducing the capital gains tax burden. Moreover, monthly pensions provide additional tax benefits, with effective tax rates ranging from approx. 5 to 10%, depending on retirement age and income tax brackets. Considering all aspects, pensions offer a tax-efficient and financially advantageous avenue for ETF investments compared to brokers.

Example: Broker vs pension

Imagine you’re contemplating your investment strategy, weighing the options between using a broker or a pension scheme for your ETF investments. Let’s delve into a hypothetical scenario to illustrate the potential outcomes.

Assuming a consistent monthly savings rate of €250 and a starting age of 30, let’s explore the performance of both approaches over time. We’ll maintain a steady rate of return at 7% and incorporate a portfolio rebalancing strategy where 10% of the portfolio is adjusted annually. For the broker scenario, envision zero setup fees and a nominal €5 trading fee for the five ETFs in the portfolio. Considering the ETF fees with a total expense ratio (TER) of 0.2%, we’ll contrast this with the pension scenario, factoring in a 1% fee excluding ETFs

Now, fast forward to retirement age, and let’s examine the results. In the broker scenario, despite generating €346,000 in capital gains, taxes and fees tally up to nearly €100,000. Meanwhile, in the pension scenario, with a comparable capital gain of €364,000, the tax burden is significantly lower at approximately €44,000. The stark contrast in tax liabilities highlights the substantial advantage of pensions over brokers, with the pension yielding an impressive payout of €430,000 – a remarkable €72,000 more than the broker.

This example underscores the critical role of tax benefits in maximizing returns over the long term, showcasing how a pension can significantly enhance your financial outcome compared to traditional brokerage options.


In conclusion, the decision between using a broker or a pension for your ETF investments ultimately depends on your investment timeline and financial goals. If your investment horizon is short-term or mid-term, the disparities between the two options may not significantly impact your returns. However, for those planning long-term investments spanning decades, a pension emerges as the more tax-efficient option for ETF investing.

Considering the potential benefits of both approaches, it may be advantageous to diversify your investment strategy by utilizing both brokers and pensions. If you’re seeking personalized guidance to navigate these options and optimize your investment portfolio, feel free to reach out to us and book a free meeting. We’re here to help you make informed decisions and achieve your financial objectives.

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